Seizing Today’s Private Debt Opportunity

Newsletter Review | May 2025

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Tariff-Driven Debt Dislocation

New U.S. tariffs are increasingly sidelining traditional banks in the syndicated lending market, creating significant opportunities for Private Debt funds. Year-to-date, both the number of transactions and total deal volume in Private Debt are well ahead of last year’s pace, with April 2025 recorded as the busiest month yet. In today’s volatile environment, this shift underscores how Private Debt can offer tailored financing, predictable, inflation-adjusting cash flows and a resilient solution for risk-aware investors.

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Contractual Cash Income Beyond Public Debt

One of the biggest advantages of Private Debt is its contractually defined cashflows, which typically exceed public-market debt yields. Loans are negotiated upfront with built-in amortization and floating-rate coupons tied to benchmark rates, instead of relying on interest rates that reset unpredictably with market swings. Over time, this structure has delivered higher returns and steadier income than aggregate bonds or investment-grade debt, with lower volatility or drawdown risk than high-yield or leveraged debt. For income-focused investors, Private Debt offers a predictable, high-quality income stream that can be either used as cash distribution or reinvested.

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A Stress-Tested Portfolio Hedge

Adding Private Debt to a mixed-asset portfolio has historically reduced overall volatility and increased downside protection, making it an effective diversifier when public markets experience heightened uncertainty. This resilience stems from several factors: direct lender relationships allow for more granular monitoring of borrower covenants, loans typically sit higher in the capital structure, and floating-rate terms cushion investors against rising default rates.

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